Fulfillment By Amazon Business Model Explained (FBA)

Fulfillment By Amazon

The Amazon FBA (Fulfillment by Amazon) business model is where you can have your own range of products featured on Amazon, where they handle the packing, shipping and customer service for each item you sell.

You can choose to either ship a small number of products you purchased locally at a discount to Amazon, or you can choose to use an overseas factory to manufacture a range of products for you. Your customer’s orders are fulfilled by Amazon, hence the name.

So, instead of having to create your own ecommerce website to sell these products, you can piggyback off the selling power of Amazon instead, because people are more likely to purchase from an online company they know and trust.

When you’re operating an FBA business you are selling physical products which are shipped to your customers, which is a very different business model to Amazon Associate marketing, or building AdSense websites, for example.

This business model is ideal for anyone who wants a more hands-on business which can be scaled to generate millions of dollars each year, while also building their new brand name.

How Amazon FBA Works

Amazon’s most recent business development is the FBA (Fulfillment by Amazon) Program, which has now placed their business at the top of the food chain when it comes to ecommerce.

Amazon FBA allows you to sell your own products directly through Amazon, without having to hold any stock, or even provide customer service for the products once they’re sold – including refunds.

There are two ways to operate this type of business. The first is that you shop for products which are on sale or deeply discounted.

You then check how much these same products are retailing for on Amazon, and if there’s a sizeable price difference you can purchase the discounted items, ship them to an Amazon fulfillment centre and have them listed in your very own FBA store. This process is known as Amazon FBA arbitrage, where you buy something at a lower price and sell it for a higher price.

Your second option is to have an overseas factory manufacture a product for you. The completed products are then shipped directly to an Amazon fulfillment centre, where they’re listed in your FBA store.

When a customer buys your product from Amazon it’s shipped directly to them, and your cut of the profits are deposited in your Amazon account, in either of the above scenarios. You simply need to ensure that you have enough stock in Amazon’s fulfillment centre to meet current and future demand from your customers.

Running an Amazon FBA business means that you’ll also enjoy a higher profit margin than if you were selling the same product as an affiliate. Amazon pay their Associates up to 8% commission on general products, whereas FBA marketers can enjoy profit margins of 50% or above on each item sold.

Amazon generates a huge amount of shopping traffic, and has hundreds of thousands of associates looking for new products to promote. If your product features in the ‘Also Bought’ or ‘Recommended’ sections of the Amazon site it can result in thousands of extra customers coming your way free of charge.

Here's a video that does a pretty good job of explaining the FBA business model:

How to Make Money With An Amazon FBA Business

You can choose to either feature a variety of different products and hope that you get lucky, or you can choose to build a brand. Smart marketers will build their brand around a handful of products which all serve the same market.

So for example, you could start an Amazon store that features toughened USB keys in a wide variety of sizes and capacities, making your store the “go to” place for USB keys of that type. Or you might decide to focus purely on toys you know you can find locally at 50% – 70% off Amazon’s regular price.

The sky is the limit in terms of what products you can have manufactured for your store, but the highest profit margins are to be found in smaller items because they cost less to manufacture, ship and store. There’s no reason why you can’t have a Chinese manufacturer create your very own range of foosball tables, but they’re going to cost a small fortune to ship.

Making money with an Amazon FBA store is far more involved than setting up affiliate or AdSense sites, for example. You need to treat this as seriously as you would a real world business because you’re dealing with sourcing and shipping physical products, especially in a situation where you’re having your own products manufactured overseas.

How Much Can I Make from An FBA Business?

In the case of an Amazon FBA arbitrage business you can make several hundred to many thousand dollars per month. It will all depend on how many discounted items you can find, how quickly you can have them listed on Amazon, and that other Amazon stores don’t discount their own stock when yours is listed.

It can be very difficult to scale an FBA arbitrage business because you’re constantly chasing after the most deeply discounted products you can find.

When it comes to having your own products manufactured there is more risk involved in starting your FBA business, but there’s also the potential for huge financial rewards when you run this type of business properly. There are lots of examples of FBA store owners making anywhere from $10,000 per month to $30,000 per day.

The businesses generating several thousand dollars per day have invested heavily in their FBA operation, have followed a very definite plan, and monitor their business carefully. Their dedication even goes as far as traveling thousands of miles to visit their manufacturer in person, usually allowing them to renegotiate better terms or pricing for their products.

That’s not to say that you need thousands of dollars to start your own FBA business. In fact, you can get started by ordering a few dozen units of your product, probably investing no more than a few hundred dollars.

Your Amazon FBA business will generate as much income as you’re willing to work hard to create, with the final earning potential being virtually unlimited.

Examples of FBA Business Model in Action

Toy Ranch FBA Seller

This is the seller mentioned in the video above, Toy Ranch. Toys are a great choice for an FBA business because parents usually buy more than just one item at a time. These guys have 3,137 items listed for sale on Amazon so there is a pretty good chance that they are making some serious money with FBA. On the flip side, trying to keep over 3,000 items in stock at Amazon's warehouse would be a logistical nightmare.

Fit Spirit

Fit Spirit sells products in the Yoga niche. The owner claims to make between $10,000 – $25,000 a month from his products.

Getting Started With Amazon FBA

Costs of an FBA Business

You can start your business with very little money, but ignore any program offering to teach you how to create an FBA business for $100 – it’s nonsense. A more sensible approach is to budget for at least $1,000 to get started, and be prepared to reinvest at least 50% of your net profit back into keeping your Amazon store supplied with enough stock to match customer demand.

This is one of the more expensive online business models to operate, because you’re dealing with physical items which Amazon charges you for storing i.e. the more products you have in storage and/or the larger those products are then the more you’re going to be charged in storage fees by Amazon.

What You Need

The real beauty of the Amazon FBA business model is that you don’t need to have a website, or online presence to sell your products through Amazon. What you do need, however, is a budget to either purchase products locally or have your products manufactured, and patience to have those products shipped to your Amazon fulfillment centre.

If your plan is to ship products bought locally at a discount to an Amazon fulfillment center you’ll need to purchase polybags, packing materials, boxes, labels and plenty of packing tape. Amazon has specific rules about how products are packaged before they’ll enter them into their inventory.

It’s also a good idea to hire a copywriter to help you create product listings that sell, because copywriting is a skill very few people have, and poorly written product listings will result in a low number of products sold, if any at all.

You should also use high resolution, professional photographs of your products in your listing. The temptation is to take the photographs yourself, but a set of professional product photographs is an investment in your business, and not one you should skimp on.

And finally we’ll touch on the subject of money again, and how much you’ll need. While it’s true that you can start an Amazon FBA business on a shoe string budget, the reality is that more cash is better when it comes to this type of online venture. In an ideal world you should start with a budget of $500 if you’re operating an FBA arbitrage business, and $2,000 if you want to get into product creation.

Best Amazon FBA Training Courses

Amazon Boot Camp

Amazon Boot Camp is a super high quality course written specifically for people interested in starting an Amazon FBA business. The course is written by The Selling Family, which is made up of Jessica and Cliff Larrew, a husband and wife team who make a very good living selling on Amazon.

That's a good very thing as many training courses are written by marketers with a cursory understanding of the topic they are writing about. They basically just buy a bunch of other courses, have a writer cobble something together and put up a flashy sales video to rake in your hard earned money.

Not the case here, these 2 REALLY know what they're talking about, and better yet – they know how to teach their system to others in a fun informative way.

The course walks you through everything you need to know from start to finish, including multiple methods for sourcing products both locally and online.​ You also get access to a private forum, with assistance from moderators.

The course costs $297 – but I believe they have a payment plan where you can spread the cost out over 3 monthly payments. There is also a 60 day money back guarantee.

​NOTE: If you can't afford the course right now I suggest you go take a look at their free videos – they contain tons of great information about getting started with Fulfillment by Amazon.

Proven Amazon Course

Proven Amazon Course, put together by Jim Cockrum, is a huge resource of information for starting an Amazon FBA business. There really is a giant wealth of information here. If you take this course you will not need to look anywhere else for information.

The best part is that Jim is constantly adding in fresh training components which, as a lifetime member, you would get for free. This is incredibly important because internet marketing is a constantly evolving beast, what worked last week might be completely useless this week. With Proven Amazon Course you will never waste your time learning outdated material that doesn't work anymore.

This is one of the main reasons why I believe wholeheartedly in paying a premium for proper training. You can definitely find cheaper courses out there. But most of those $47.00 eBooks you find were written in 2011 and probably not updated since they were released.

One of the the best feature of Proven Amazon Course is that it includes two excellent ways to get personal help from the pros as well as your peers; a private forum, and a private Facebook mastermind group, which is very active. The private forum is moderated by staff and advanced students in the program and does a great job of answering any questions you may have about the course material.

While at first glance the price might sound a little high ($347), it still represents great value and I highly recommend it for anyone interested in getting started with selling on Amazon.

Proven Amazon Course vrs. Amazon Boot Camp

Both courses are Awesome and cover much of the same material. There are really only 2 key differences:

1. Course Organization – If you are the type of person who needs to have a step by step guide that tells you exactly what to do and in what order to do it then you may want to go with Amazon Boot Camp as, in my opinion, it is a little better organized.

Proven Amazon Course is more non-linear, you need to pick and choose which training modules to follow, and that may confuse some beginners that need more direction in their training.

2. Support – While Amazon Boot Camp has an active forum, you really can't beat the member interaction with Proven Amazon Course. The private Facebook group and forum both have a flurry of activity happening. In the Proven Amazon Course Facebook group, there are several questions being asked every hour, and lots of answers as well! And Jim Cockrum himself is involved in both PAC communities.

So, if you are the type of person who needs a step by step blueprint to motivate you – get Amazon Boot Camp. If on the other hand you're brain works a bit more non-linearly and you learn better thru interaction – pick up Proven Amazon Course.

But when it comes right down to it – they are both great courses and will teach you everything you need to know to get your FBA business off the ground.

Making $1,000 Dollars

This is a low cost alternative to the 2 courses listed above. It is nowhere near as authoritative as Amazon Boot Camp or Proven Amazon Course but it does contain all of the information necessary to get your Amazon FBA business up and running.

How Long Will it Take to Make Money with Amazon FBA

Once your products are listed on Amazon you can start making money almost immediately, but it will depend on the type of product you’re selling and just how popular it is with customers.

When you first start out as a seller on Amazon your first payment will be delayed by about 28 days to allow for chargebacks and refunds. Once you’ve passed the initial 28 day waiting period you will then see the profit from items sold appear in your Amazon account balance after 14 days.

Some older types of Amazon accounts allow for daily payments to be made to you, but unless you already have one of these there’s no way to sign up for one today.

Pros of FBA

You can run this business from anywhere in the world, despite the fact you’re dealing with physical products.

Products are stored and shipped by Amazon, so you never need to worry about warehousing.

Amazon support staff deal with all customer service queries in relation to your products.

You’re piggybacking off the enormous trust online shoppers have in Amazon – they’ll purchase your product based on that trust alone.

Any product returns are also handled by Amazon support staff.

Your products will be eligible for Amazon Prime, which means 2-day free shipping for your customers.

An Amazon FBA business can be scaled as quickly as you like – it’s not uncommon for FBA stores to go from selling a few hundred dollars worth of products each month, to tens of thousands of dollars of product a few months later.

You are only ever charged for storage space in an Amazon facility when you actually use it – there are no standing charges.

If your product proves to be popular Amazon will drive lots of organic traffic to it, cutting your marketing efforts to almost zero.

You can create an international business from the comfort of your sofa.

Cons of FBA

Not every product you list will be a best seller, in fact the odds are weighed against that happening – just because you had a great idea for a product doesn’t mean everyone will want to buy it.

You will have to become an expert in international trade almost overnight – dealing with suppliers in foreign countries can be challenging.

Amazon will only internally promote products which get positive reviews and are purchased by a lot of customers.

Finding the right company to manufacture your product can be a case of trial and error.

It only takes one faulty batch of goods to severely tarnish your reputation on Amazon.

If your manufacturer fails to deliver a shipment you have nothing to sell.

Here are some tips for making the most of your FBA business:

Create a store which specializes in one type of product e.g. toys, electronic items, or whatever. Don’t create a store which is full of random items.

If you’re having products manufactured overseas the trick is to look at what’s already selling and work to that demand.

Unique products sell far more quickly, and in bigger volumes, than products you can find in a local store, or in any other online store.

Look for social proof when coming up with ideas for your own products. If it doesn’t already exist it’s probably because there’s no demand for it, you’ve created something entirely new, or somebody else has already tried and failed in that market.

Order samples from several manufacturers, until you find one that delivers the exact product you had in mind.

Carry 10% more stock than you think you’ll need to cover delays in international shipping and/or foreign holidays.

Focus on promoting your product as much as you can once its listing goes live – if you can leech off Amazon’s flood of organic traffic it can do all the work of selling for you.

If you create a successful product line somebody, somewhere is going to copy it, so don’t rely on one range of products for your store. Think ahead of the curve when it comes to product creation by looking at shopping trends and popular products in your niche.